The Deal: Shutdown, FCC Confirmations Could Stall Belo Deal

WASHINGTON ( The Deal) -- Despite Gannett's ( GCI) plans to close its $1.3 billion acquisition of Belo's ( BLC) 20 TV stations by the end of this year, the deal is unlikely to gain regulatory approval any sooner than the first quarter of 2014.

The shutdown of the federal government delayed regulators' examination of the transaction, particularly at the Federal Communications Commission, where the deal raises some contentious media policy issues. Not only did the shutdown delay the FCC staffers' review of the transaction but it delayed the return of the commission to its full five-member complement. The shutdown forced the Senate Commerce Committee to postpone a vote on the confirmation of Republican Michael O'Rielly to join the commission and shutdown architect Sen. Ted Cruz, R-Texas, has placed a hold on a full Senate vote on Thomas Wheeler to be commission chairman. Votes on the nominees have not been rescheduled.

Sinclair Broadcast Group's ( SBGI) pending $985 million purchase of eight stations owned by Allbritton Communications also raises key policy issues but the Hunt Valley, Md., company has already said the deal could face delay in winning regulatory approval until the second quarter of 2014.

The Belo and Allbritton deals may get caught up in FCC efforts to resolve longstanding disputes over the direction of its media ownership rules. The rules have been in a cycle of revision by the commission and court challenge since enactment of the Telecommunications Act of 1996. It is unlikely acting FCC Chairwoman Mignon Clyburn will want to deal with pending mergers in a way that would be perceived as setting broader commission policy on media ownership before Wheeler and O'Rielly get on board.

Both the Belo and Allbritton deals are also being reviewed by the Department of Justice's Antitrust Division. According to Sinclair, the DOJ's inquiry is focused on two stations the broadcaster would be buying in Harrisburg, Pa., and Charleston, S.C., but anti-consolidation activists also want regulators to block the transfer of Allbritton's Birmingham, Ala., station.

Gannett and Belo have said they expect to close their deal by the end of the year despite the FCC and DOJ reviews. The termination date is Dec. 27, but the deadline can be extended to June 27, 2014, to allow for regulatory approvals. Belo shareholders cleared the merger Sept. 25.

A group of anti-consolidation activists, including Free Press, Common Cause, and the National Hispanic Media Caucus, have asked the FCC to exclude five Belo stations -- in St. Louis, Louisville, Ky., Portland, Ore., Phoenix and Tucson, Ariz. -- from Gannett's acquisition because it would violate limits on common ownership of a daily newspaper and broadcast station in the same town or on how many stations one owner can control in a market.

The groups are particularly concerned about shared service agreements with other broadcasters that the groups say will allow Gannett to circumvent the newspaper cross-ownership restriction or local TV ownership limits by turning over formal ownership of a station to another company while retaining some aspect of station operation. "Gannett and Belo have orchestrated the transaction so that Belo will transfer the licenses for these stations to a third-party shell company, either Sander Operating Company or Tucker Operating Company, and Gannett will operate the stations," the groups said in a July 24 petition seeking to exclude the five stations from the sale. "These arrangements attempt to mask the true intent and effect of the transaction: to allow Gannett to simultaneously influence and control multiple media outlets in the same local market in a way that is contrary to the public interest and otherwise prohibited by the commission's rules.

Sinclair's purchase of the Allbritton station relies on similar arrangements to get around TV ownership limits.

Officials from both Sinclair and Gannett have said that the agreements have already been permitted by the FCC and the commission has no grounds for excluding some stations from the transactions.

Matt Wood, policy director at Free Press, noted that Clyburn has been willing to address some TV ownership issues, namely by proposing to eliminate the so-called UHF discount allowing station owners to fudge limits on how many TV outlets they can own nationwide by allowing the audience reach of channels 14 and higher to be counted at half of TV households within their designated market area.

"She's been bold and has asked tough questions about the UHF discount but she's unlikely to rule on these large deals without a full lineup of the commission," Wood said.

In addition, there's plenty of time left on the FCC's nonbinding 180-day shot clock when it comes to the Belo deal. Tuesday was only day 102 and the commission could continue the review until the second week of January without going much over the self-imposed deadline.